Billing trick saddles ill with more costs

By MARLENE HARRIS-TAYLOR

Blade Medical Editor

Toledo

Beginning in August all hospitals will be required to notify Medicare patients if they are considered on outpatient observation status after being hospitalized more than 24 hours.

Observation status is a confusing concept. It allows Medicare patients to be admitted, treated the same as any other patient by the hospital staff, but be classified as an outpatient – even after two days or more of care.

It began as a way to keep people in the emergency department a little longer to decide if their condition was severe enough for hospital admission.

Observation status has now morphed into an accounting trick to help the government save health-care dollars, said Dr. Ann Sheehy, division head of the Department of Medicine, University of Wisconsin Hospital.

“It’s purely a billing designation. Patients can get the same medical care under both [observation and inpatient],” she said.

Dr. Sheehy also is the lead author of the report “The Observation Status Problem.”

“How can you be put in a hospital and not be considered an inpatient? It’s not even logical,” she said.

There has been a nearly 20 percent decrease in inpatient discharges from hospitals and a more than 44 percent increase in outpatient visits for Medicare beneficiaries between 2006 and 2014, according to a 2016 report by the Medicare Payment Advisory Commission.

“Part of the decline in discharges and growth in outpatient service is due to increased use of observation services as a substitute for inpatient care,” the report stated.

Medicare and private insurance companies, which offer Medicare managed-health plans, save money when a patient is under observation status because out-of-pocket costs for the beneficiary increase. Hospitals also are reimbursed at a lower rate from Medicare if patients are on observation status, which also saves money for the federal government, Dr. Sheehy said.

Observation status also often leaves patients responsible for paying the enormous cost of going into a skilled nursing facility for rehabilitation services after their hospital stay.

In many cases, Medicare beneficiaries are blindsided by the increase in their out-of-pocket costs when classified as observation outpatients.

Audrey Sherman, 68, of West Toledo was shocked when she opened the Flower Hospital bill from her husband’s recent admission.

The retired Toledo couple have Medicare Aetna Advantage health insurance and thought their bills were covered by the insurance plan.

“I just assumed if they put you in a bed you were admitted. Then I learned the hard way,” Audrey Sherman said.

Mike Sherman’s bill was nearly $1,700, primarily for medications he was given during his 21/2-day stay last November. The Shermans were expecting instead to be billed the $65 co-pay that is charged for Medicare patients for inpatient hospital stays, Audrey Sherman said.

Mike Sherman, 74, retired from the University of Toledo last year and had been on Medicare only a few months when he became ill. The Shermans did not know about Medicare rules governing observation admissions in hospitals.

When patients are designated as “inpatient status,” their bill is covered by Medicare Part A, except a small co-pay. When a hospital stay is designated as “outpatient observation,” however, the bill falls under Medicare Part B.

Medicare Part B does not cover drugs a patient is given in the hospital for any pre-existing medical conditions. For example, if a patient has diabetes and takes insulin shots on a regular basis, insulin shots given in the hospital would be billed to the patient.